MARKETVIEW San Diego Office, Q1 21 Improving local economy boosts quarterly results Vacancy Rate Net Absorption Construction Lease Rate 13.1% 233,3 sq. ft. 37,4 sq. ft. $2.4 FSG Figure 1: Net Absorption vs. Asking Lease Rate 's SF Net Absorption Asking Rate (FSG) 1,2 6 4 2 (2) (4) San Diego s Office market strength was reinforced by overall sales transactions that exceeded $43 million in Q1 21. Positive net absorption of 233,3 sq. ft. and strong leasing activity during Q1 21 demonstrated the Office market s core strength. *Arrows indicate change from previous quarter 2 3 4 1 21 211 212 213 214 21 Rate (FSG) $2. $2.4 $2.3 $2.2 $2.1 $2. $1.9 Source: CBRE Research, Q1 21. San Diego s office market started the new year off on a positive note. In Q1 21, San Diego s job growth beat the national average. The market was also strengthened by an impressive volume of sales and leasing activity, an increase in overall asking rates and strong positive net absorption. Overall asking lease rates increased to $2.4 during Q1 21, closing to within 6.% of the $2.62 peak reported in Q2 2. San Diego County s Gross Domestic Product (GDP) is projected to surpass $21.6 billion for the year, $12 billion more than 214. The new year saw the market s overall economy continue to improve. San Diego County s Gross Domestic Product (GDP) is projected to surpass $21.6 billion for the year, $12 billion more than the previous year. National University reported a diversified mix of high-technology businesses will lead the economic growth. As San Diego continues to distance itself from the recession, it is being bolstered by a diverse mix of scientific research and development product, in addition to more traditional industries like tourism, military bases, defense procurement and real estate development. Q1 21 CBRE Research 21 CBRE, INC 1
San Diego s unemployment rate dropped basis points (bps) to.3% in Q1 21 and remains 1 bps better than the previous year. It was also the lowest level unemployment has been since April of 2. However, San Diego s overall job market had mixed results with an impressive increase of 39,7 jobs year-over-year, but the quarter-over-quarter numbers experienced a decline of just under 1, jobs. San Diego s total employment grew by more than 3.% year-over-year, surpassing the national growth rate of 2.4%. San Diego s private sector economy made up 9% of the year-over-year job growth, increasing 3.3%, and out-pacing the national average of 2.. Professional and business services accounted for one-quarter of all year-over-year private job growth. Overall asking lease rates increased to $2.4 during Q1 21, an increase of $.2 from the previous quarter and $.6 from the previous year. San Diego s average asking rate was the highest recorded since Q1 29 and closed to within 6.% of the $2.62 peak reported in Q2 2. CBRE Econometric Advisors (CBRE EA) forecasts that asking rates will continue to rise and should surpass the previous peak by Q4 216. Del Mar Heights continues to have the highest average asking rate in the market at $3.71 FSG. Class A overall asking rates increased quarter-overquarter, while Class B remained the same. Class A increased 1. to $2.9. The year-over-year rates for both Class A and B saw improvements of 2. and 2.6%, respectively. The UTC Class A market continues to have the strongest rebound postrecession. UTC Landlords have been able to drive Class A asking rates to $3.74, an astounding 3.3% increase from their trough of $2.44 in Q2 211. Figure 2: Unemployment Rate 14% SD CA U.S. 12% 1% 6% 4% 211 212 213 214 1 Source: U.S. Bureau of Labor Statistics, Q1 21. Figure 3: Year-Over-Year Job Growth Jobs (M) # Employed Y-o-Y % Change Y-o-Y % 1.4 4% 3% 1.3 2% 1% 1.2 % 211 212 213 214 21 Source: U.S. Bureau of Labor Statistics, Q1 21. Figure 4: Asking Lease Rate Rate (FSG) $3. A B C $2.6 $2.2 $1. $1.4 211 212 213 214 1 Source: CBRE Research, Q1 21. Figure : Year-Over-Year Rent Growth Y-o-Y % 1% % % (%) (1%) (1%) 2 3 4 1 21 211 212 213 214 1 Source: CBRE Research, Q1 21. Q1 21 CBRE RESEARCH 21 CBRE, INC 2
In Q1 21, overall vacancy dropped 1 bps from the previous quarter to 13.1%. It was 14 bps lower than the previous year and was also the lowest rate reported since Q4 26. Class A vacancy has improved the most, posting a 1,3 bps decrease to 11.6% from its peak of 22.9% in Q3 29, thus continuing to give landlords more leverage in negotiations. This continues to be led by submarkets like Rancho Bernardo with a total Class A vacancy rate of 3.%, surpassing its previous all-time low by 12 bps. Class B overall vacancy dropped to 1.2%, 46 bps below its peak of 19. in Q2 211. CBRE EA forecasts that San Diego overall vacancy rates will continue to improve, dropping to 12.2% by Q4 216. San Diego s office market recorded positive net absorption of 233,3 sq. ft. during Q1 21. For 2 of the past 24 quarters net absorption has been positive. The majority of Q1 21 s positive net absorption can be attributed to substantial transactions completed in the I-1 Corridor, including Daybreak Game Co., Turtle Beach Corporation and MedImpact. Construction activity in Q1 21 grew from the previous quarter to 37,4 sq. ft. The majority of the increase came from ViaSat s 77,4-sq.-ft. project in Carlsbad. Although preliminary plans called for a portion to have warehouse space, it was built as an office project and is now included in office stats. There were no properties delivered. Institutional sales transactions during Q1 21 exceeded $27 million dollars. Overall sales transactions in Q1 21 exceeded $43 million. Notable properties that traded include the 311,3-sq.-ft. Sorrento Mesa Office Campus and the 44,73-sq.-ft. Newport National Portfolio in Carlsbad and San Marcos. Figure 6: Overall Vacancy Rate 2% 1 16% 14% 12% 1% 211 212 213 214 1 Source: CBRE Research, Q1 21. Figure : Net Absorption 's SF A B C () 211 212 213 214 1 Source: CBRE Research, Q1 21. Figure 7: Vacancy Rate by Class 23% A B C 1 13% 211 212 213 214 1 Source: CBRE Research, Q1 21. Figure 9: Under Construction 's SF 6 4 2 211 212 213 214 1 Source: CBRE Research, Q1 21. Q1 21 CBRE RESEARCH 21 CBRE, INC 3
Figure 1: Market Statistics Region RBA Direct Vacancy % Overall Vacancy % Qtr Net Absorption Under Const. Const. Deliveries Asking Lease Rate ($/FSG) Central San Diego 4,4,692 11.9 12. 16,36 41,471 2.63 Downtown 11,4,642 13.6 14.4 (6,266) 32, 2.3 East County 2,72,632 6.1 6.4 (16,493) 1.77 North County 9,13,34 1.6 16. 7,19 1,33 2.27 South San Diego 2,37,37 1. 1.9 332 2.26 SW Riverside 3,136,42 12.9 13.2 42,779 17, 1.74 San Diego Totals 7,67,11 12.6 13.1 233,3 37,4 2.4 Class A 27,66,729 1. 11.6 (6,243) 1,71 2.9 Class B 3,172,712 14.6 1.2 297,71 21,633 2.34 Class C 12,777,677 1.6 1.7 4,31 1.79 Source: CBRE Research, Q1 21 Figure 11: Key Lease Transactions Occupier Industry Sector Location Class Sq. Ft. Leased Kaiser Permanente* Healthcare Mission Valley B 97,39 Daybreak Game Co. Technology Rancho Bernardo B 69,967 MedImpact Prof. & Bus. Services Scripps Ranch B 46, Edgewave* Technology Rancho Bernardo A 36,617 Turtle Beach Corporation Technology Scripps Ranch B 34,36 renewals indicated by* Source: CBRE Research, Q1 21 Figure 12: Key Sales Transactions Property Buyer Location Total Price/Sq. Ft. RBA Newport National Brookwood Financial Carlsbad & $113.M / $233 44,73 Portfolio San Marcos Sorrento Mesa Office Campus Cruzan/Invesco Sorrento Mesa $. M / $27 311,3 Copley Corporate Center TIAA-CREF Kearny Mesa $43. M / $361 12,43 Paseo Summit Davlyn Investments Carlsbad $16.4 M / $217 7,422 Herschel & Wall MHF Real Estate La Jolla $1.2 M / $46 36,6 Source: CBRE Research, Q121 Q1 21 CBRE RESEARCH 21 CBRE, INC 4
Camp Pendleton Marine Corps Base 76 7 Oceanside 7 4 1 2 3 MC Clellan 4 1 2 1 2 3 4 1 2 3 4 Palomar Carlsbad North Beach Cities NORTH North Beach Cities La Jolla Vista Del Mar Heights Sorrento Valley Torrey Pines UTC Point Loma/ Sports Arena 212 213 214 2 Sorrento Mesa Governor Park PB/Rose Canyon/Morena San Marcos 6 Old Town/ th Ave San Diego Intl- Lindbergh FLD 6 Corridor Miramar 2 163 SW RIVERSIDE 1 CENTRAL MCAS Miramar/ Mitscher Field 163 Kearny Mesa Mission Valley 1 Escondido 1 Mission Gorge 1 Lake Hodges Rancho Bernardo/ Poway Scripps Ranch EAST 2 94 East County 12 12 67 San Vincente CONTACTS Mark Fitzgerald San Diego Research Manager +1 646 47 Mark.Fitzgerald2@cbre.com Will Howard Office Research Analyst +1 646 4727 Will.Howard@cbre.com Jill Luna Manager, Southern California Research +1 949 72 69 Jill.Luna@cbre.com Gary Baragona Director, Southern California Research +1 213 613 313 Gary.Baragona@cbre.com 1 Sweetwater DOWNTOWN 4 SOUTH Lower Otay r 12 9 MEXICO CBRE OFFICES San Diego Central Office 436 Executive Dr Suite 16 San Diego, CA 92121 Downtown San Diego Office 3 Tenth Ave Suite San Diego, CA 9211 North County Office 7 Fleet St Suite 1 Carlsbad, CA 92 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway. Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.